Agricultural Market Access:
A Moving Target in the WTO Negotiations?
Martina Brockmeier and Janine Pelikan
Institute of Market Analysis and Agricultural Trade Policy, Federal Agricultural Research Centre (FAL), Germany Contact: martina.brockmeier@fal.de, janine.pelikan@fal.de
Contributed paper prepared for presentation at the International Association of Agri-cultural Economics Conference, Gold Coast, Australia12–18, 2006
Copyright 2006 by Martina Brockmeier and Janine Pelikan. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copy-right notice appears on all such copies.
1 Introduction
Agricultural market access is a highly controversial issue in the current WTO policy debate. Ac-cording to the latest proposals of the EU, the USA, the G-20 and the G-331 the positions on mar-ket access differ strongly and thus the success of the upcoming Hong Kong negotiations is evi-dently put at risk. The most contentious issues concerning market access are: Which magnitude should the tariff cuts have? What kind of tiered formula should be implemented? Should tariffs be cut at a maximum level? How should the number and width of tariff bands be handled? Should there be flexibility within the tariff bands? How many products should be defined as sen-sitive? Which degree of Special Differential Treatment (SDT) should be imposed? How should Tariff Rate Quotas (TRQs) be handled? The answers to theses questions will determine the mag-nitude of the market access of the prevailing WTO member countries which is accordingly still a moving target in the WTO negotiations.
This paper addresses some of the questions raised above. Based on the analysis we show how much the trade balance of the EU-27 changes, if different tariff cutting options to open market access are applied and whether industrialized countries (ICs), developing countries (DCs), least developed countries (LDCs) or the non-WTO member countries (ROW) are able to take advan-tage of the enlarged EU market access. Furthermore, the most sensitive variables for market ac-cess for different product groups will be identified. The paper begins by discussing the analyzed variables for market access. Chapter 3 introduces the extended Global Trade Analysis Project (GTAP) model which is used as the methodological instrument for the calculations. Empirical results are discussed in the subsequent chapter. The paper ends with a conclusion.
2 Variables to Enlarge Market Access
The Doha Work Programme commits the WTO members to enlarge market access on the basis of a tiered tariff formula that grants higher cuts for higher tariffs (WTO, 2004). Also, member countries have already decided on a complex concept to convert non ad valorem tariffs, e.g., spe-cific tariffs to ad valorem equivalents (AVEs). Beyond, not very much has been decided yet, so that the list of open questions concerning tariff cuts to open market access is rather long.
The magnitude of these tariff cuts is one of the most contentious issues in the negotiations. Jean et al. (2005), however, found that only large tariff cuts would have a major impact on market access. They identified the difference between bound and applied tariff rates as the main reason for this result.
Although the use of a tiered formula is already decided, some leeway exists to implement this formula. It can be imposed as a linear formula with linear cuts between the bands, comparable with the Harbinson proposal (WTO, 2003). This approach implies the problem of discontinuity which results in a change of the ordering of tariffs. From the political-economy perspective, such discontinuities would create political resistance from firms which are just above the transition points (Anderson and Martin, 2005a, p.16). Also developing countries such as the Dominican Republic which fixed their bound tariffs at one specific level, can be strongly affected by the problem of discontinuities. A possibility for avoiding this problem is the implementation of a progressive tiered formula as proposed by Canada in May 2005.2 Instead of applying a single cut to the entire tariff line, different cuts are applied to different portions of the same tariff. Because of smaller cuts in the lower portions of the tariff, in absolute terms this formula cuts high tariffs by less than a linear tiered formula.
Another open question in the WTO negotiations is the degree of flexibility within each formula. Formulas with high flexibility only demand for an average reduction. In that way, these formulas allow governments to shift the burden of the tariff reduction from one sector to another (Bureau and Salvatici, 2004, p.5). Abreu (1996) shows with manufactures that the average tariff cutting rule used in the Uruguay Round (1986-94) has lead to small cuts in sectors with high-tariffs. He identifies the same sectors as the most important ones for least developed countries. High flexi-bility could be reduced by an increasing number of tariff bands in combination with a smaller width of these tariff bands. Also, more tariff bands could reduce the problem of discontinuity. Another controversial issue in the negotiations is the number of sensitive products. This has been
already analyzed by Jean et al. (2005). They found that even allowing two percent of the 6-digit tariff lines in developed countries to be classified as sensitive would dramatically reduce the ef-fectiveness of tariff reductions. Whether or not to impose a maximum tariff or a tariff cap is
an-other undecided issue. Here, Jales et al. (2005) shows that a low level cap does not improve trade, because most of the high tariffs are little other than import bans. Concerning tariff rate quotas, de Gorter and Kliauga (2005) found that a reduction of the out-of-quota tariffs increases trade much more than an expansion of tariff rate quotas. Jales et al. (2005) pointed out that TRQs are only a second best option for liberalization because they are not transparent and no efficient way to increase market access.
Most of the studies mentioned above are not taking intersectoral and interregional effects of tar-iff cutting options into account. Also comparisons of dtar-ifferent options for market access are not well documented in the literature. Particularly different numbers and width of tariff bands or different tiered formulas have not been analyzed in a comparable manner. In the following chap-ters we try to partly close this gap in literature.
3 Empirical Model
The analyses in this paper are based on the comparative static standard multi regional general equilibrium GTAP model. This model provides an elaborate representation of the economy in-cluding the linkages between farming, agribusiness, industrial and service sectors of the econ-omy. The use of the non-homothetic constant difference of elasticity (CDE) functional form to handle private household preferences, the explicit treatment of international trade and transport margins and a global banking sector which links global savings and consumption are innovative in GTAP. Trade is represented by bilateral matrices based on the Armington assumption. Further features of the standard model are perfect competition in all markets as well as a profit and utility maximizing behavior of producers and consumers. All policy interventions are represented by price wedges. The framework of the standard GTAP model is well documented in the GTAP book (Hertel, 1997) and available on the Internet (www.gtap.agecon.purdue.edu).
3.1 Extensions of the Model
Agricultural policy instruments are represented via price wedges in the Standard GTAP model. Therefore, the Standard GTAP model is complemented with an explicit modeling of the instru-ments related to the Mid Term Review (MTR) of the EU. Following the approach of Frandsen et al. (2002), we introduce an additional land subsidy rate into the model that is equalized across all sectors entitled to direct payments. Additionally, the EU budget is included in the GTAP model
using a Social Accounting Matrix which covers the expenditures and revenues of the European Agricultural Guidance and Guarantee Fund (EAGGF) as well as the net transfer between EU member countries. Here, we followed the approach of Brockmeier et al. (2005).
Besides changes in the political environment of an economy, macroeconomic developments such as technical progress are of great importance for the growth of an economy. In order to take these changes into account, corresponding trends are incorporated in the analysis at hand. For this purpose an approach by van Tongeren and Huang (2004) is used which allows the inclusion of exogenous projections of the global and regional GDP and factor endowment into the ex-tended GTAP model. In the simulations, technical progress is generated endogenously by the model, enabling the projected growth pattern.
3.2 Extension of the Database
The most recent GTAP database (Version 6.04) includes applied tariffs which are based on the Market Access Map (MAcMap). The source files of MAcMap come from the TRAINS, the WTO and the AMAD database. The applied rates of the newest GTAP database take prefer-ences, AVEs and TRQs into account. Information on preferences is taken from the TRAINS da-tabase and is augmented with data from national sources. AVEs are calculated on the basis of the median unit value of world wide exporters using an average flow of the years 2000 to 2003. Fi-nally, TRQs are taking into account utilizing the filled rate from the AMAD database. If the filled rate is less than 90%, the in-quota tariff is used. The out-of-quota rate is employed if the filled rate is higher than 100%. If the filled rate is higher than 90%, but smaller than 100%, a simple average of the in-quota and out-of-quota rate is applied (BOUËT et al., 2004).
However, comparable bound rates at the 6 digit or at the GTAP database aggregation level are not yet publicly available. Accordingly, the GTAP database used for calculations in this paper is extended by bound tariff data. Tariff data up to a 10 digit level is provided by the Economic Re-search Service (ERS) of the USDA. This includes agricultural ad valorem and non ad valorem bound tariffs from Chapters 1-24 of the Harmonized System 1996 (HS96). Specific tariffs are converted into AVEs based on average world import unit values (Gibson et al., 2001, p. 6). Tar-iff data provided at the 8 or 10 digit levels are aggregated to the 6 digit level using the simple
average3. However, all 2, 4 or 6 digit tariffs are aggregated to the GTAP level using import trade weights. This is done with the help of source generic world import values from the COMTRADE database of the year 2001 excluding intra-EU trade.
Import weighting is the most commonly used aggregation scheme, also utilized to aggregate the applied rates included in the GTAP database version 6.04. Advantageously, trade weights take the relative importance of trade flows into account. Furthermore, the welfare implications are better addressed with this method. In contrast, the import weighted aggregation scheme leads to an endogenous bias, as the weight for every individual tariff decreases with an increase of the tariff. Accordingly, prohibitive tariffs impeding market access, and thereby reducing the trade volumes to zero, are not taken into account by import weighting. Trade barriers are therefore underestimated with this method.4
3.3 Calculation of Tariff Cuts
WTO negotiations are based on bound rates, while the economic effect of a tariff cut clearly de-pends on the applied rate. Therefore, our calculations of tariff cuts are based on bound and ap-plied rates. The difference between bound and apap-plied duties is called water in the tariffs.5 A reduction of the bound rate does not result in a trade effect, if the reduced bound rate is above the applied rate (Figure 1, Parts 1.1 and 1.2), e.g., the water in the tariff still exists after the tariff cut so that imports are unchanged. However, there will be a trade effect if tariff cuts exceed the wa-ter in the tariffs (Figure 1, Part 1.3).6
Accordingly, tariff cuts are calculated based on the following equations:
1 br br 0 br 100) T y 1 ( T ⋅ − = (1)
where: T Tariff rate
3 This procedure was used due to missing data on bilateral trade values at the 8 or 10 digit level.
4 In contrast to this study, Walkenhorst and Dihel (2003) used simple averages for the tariff aggregation to avoid biases from the interdependence of tariff levels and trade flows. The simple non weighted average, however, does not take the relative importance of particular tariffs into account.
5 There is disagreement over the definition of the term "water in the tariffs" in the literature. For example, Martin and Wang (2004) define water in the tariffs as any gap between the applied rate and the actual rate of protec-tion, where the actual rate is lower. Additionally, the term "water in the tariffs" is not equivalent to the term "binding overhang" which defines the difference between the bound and the MFN rate (Francois and Martin, 2003).
6 Due to unavailable information we do not take the effective protection into account. However, it should be stressed that an implemented tariff cut will not result in a trade effect if it leaves the applied rate above the ef-fective protection (Podbury and Roberts, 2003, p. 5).
y Tariff cut in % subscript br/ar Bound / applied rate superscript 0/1 Initial / final situation
If 1 br
T is higher than or equal to 0 ar
T , no tariff cuts will be implemented. If 1 br
T is smaller than
0 ar
T , the tariff cut to achieve 1 br
T = 1 ar
T will be implemented according to equation (2):
⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ ⎟⎟ ⎠ ⎞ ⎜⎜ ⎝ ⎛ − + ⋅ = = 0 ar 0 ar 1 br 0 ar 1 ar 1 br T T T 1 T T T (2)
Figure 1: Bound Rates, Applied Rates and Water in the Tariffs1)
pw 0 br T 0 ar T no trade trade effect 1.1 1.1 pw 0 br T 0 ar T 1 ar T 1 br T 1.3 1.3 pw 0 br T 1 br T 1 ar 0 ar T T = 1.2 1.2
T = Tariffs, br = Bound rates, ar = Applied rates, pw = World market price
Water in the tariffs will lead to country-specific reduction commitments. Due to the ceiling bind-ing option developbind-ing countries were allowed to implement the tariff bindbind-ing without reference to former protection levels. As a result, the bound tariffs in developing countries are much higher than in developed countries (Anderson and Martin, 2005a, pp. 14). Therefore, developing coun-tries might experience an implicit preferential treatment that might be added to the already granted special and differential treatment.
3.4 Experiments
The base run of the simulations represents a projection of population, GDP and factor endow-ment up to the year 2014. Additionally, the AGENDA 2000 (2004) and the EU enlargeendow-ment (2010) are implemented (compare Figure 2). The EBA agreement is introduced without transi-tion period through a 100% eliminatransi-tion of tariffs for LDCs in 2010. With the implementatransi-tion of the MTR (2014), the existing domestic support measures are converted into a region-specific fully decoupled land area payment, while budgetary outlays for total domestic support are held constant. The base run only considers political intervention in the EU-15 and in the candidate
countries. Developments in other regions, like the Farm Bill of the USA, are not taken into ac-count. Parallel to the base run, a scenario is implemented as well. It takes the same projections and policy shocks (Agenda 2000, EU enlargement, EBA agreement and MTR) into account, but for the time period 2010 to 2014, it additionally includes simulations related to the WTO round.
Figure 2: Agenda 2000 and EU Enlargement
Agenda 2000: Cereals:
reduction of intervention prices by –15 %
unification of direct payments for cereals, oilseeds and protein plants
reduction of set-aside rate from 15 % to 10 %
Beef:
reduction of intervention prices by –18 %
no change in direct payments
Milk:
reduction of intervention prices by –15 %
retention of quota regulation
increase of quota by 2.4 %
Agenda 2000: Cereals:
reduction of intervention prices by –15 %
unification of direct payments for cereals, oilseeds and protein plants
reduction of set-aside rate from 15 % to 10 %
Beef:
reduction of intervention prices by –18 %
no change in direct payments Milk:
reduction of intervention prices by –15 %
retention of quota regulation
increase of quota by 2.4 %
EU enlargement:
Creation of customs union:
EU-15 and MOEL abolish all bilateral trade barriers
MOEL establish trade protection of the EU-15
production quotas for milk and sugar are fixed at the current production level of the MOEL
no set-aside in the new member countries
direct payments in the EU-15 remain unchanged
100 % of the current land and animal premiums in the EU-15 are transferred to the new member states (standard procedure)
fixation of plafonds for direct payments in the EU-15
Common EU budget:
complete integration of MOEL in the Common Budget
EU enlargement:
Creation of customs union:
EU-15 and MOEL abolish all bilateral trade barriers
MOEL establish trade protection of the EU-15
production quotas for milk and sugar are fixed at the current production level of the MOEL
no set-aside in the new member countries
direct payments in the EU-15 remain unchanged
100 % of the current land and animal premiums in the EU-15 are transferred to the new member states (standard procedure)
fixation of plafonds for direct payments in the EU-15
Common EU budget:
complete integration of MOEL in the Common Budget
The Doha Work Programme leaves a lot of room for speculations on how market access will be improved through agricultural trade negotiations. Thus, in the following six experiments, some of the variables still under negotiation (compare Chapter 2) will be varied to see how they affect the outcome of the Doha round. Table 1 therefore shows three different variants for tariff bands, representing widened (1), shrunken (2) and a reduced number of bands (3). Additionally, Table 1 presents variations of tariff cuts classified as low (A) and high (B) as well as tariff cuts adapted to a lower number of tariff bands (C).
In Table 2 we demonstrate how the six experiments are formed using variation of tariff bands and cuts, different kind of formulas and the option of capping. The experiments are put together in such a way that Experiment 2 to 6 only differ from Experiment 1 in one variable.
Additionally, we implemented a tariff cut for non-agricultural commodities of 50% and 33% in the IC and the DC, respectively. Exports subsidies are also eliminated in all experiments, while it is assumed that the EU direct payments qualify for the green box and are therefore kept
un-changed. According to the Special Differential Treatment, DCs only have to reduce their tariffs by half of the ICs tariffs. LDCs are exempted from tariff reductions.
Table 1: Bands and Tariff Cuts
Tariff Bands Tariff Cuts
Variant 1 Variant 2 Variant 3 Variant A Variant B Variant C Developed > 80 > 50 >80 20 % 80 % 80 % Countries > 60 ≤ 80 > 40 ≤ 50 >50 ≤ 80 18 % 72 % 69.5 % > 40 ≤ 60 > 30 ≤ 40 >20 ≤ 50 16 % 64 % 58.5 % > 20 ≤ 40 > 20 ≤ 30 0 ≤ 20 14 % 56 % 48 % 0 ≤ 20 0 ≤ 20 12 % 48 % Developing > 130 > 70 10 % 40 % Countries > 80 ≤ 130 > 50 ≤ 70 9 % 36 % > 30 ≤ 80 > 30 ≤ 50 8 % 32 % 0 ≤ 30 0 ≤ 30 7 % 28 % 0 % 0 % Table 2: Experiments Experiments Variable Variant 1 2 3 4 5 6 Tariff bands 1 2 3 Tariff cuts A B C
Kind of tiered formula linear
progressive
Capping
4 Results
This section discusses the results of the six experiments. In analyzing the effects of different op-tions for expanding the market access, we will mainly focus on the changes of the EU-27 trade balances and whether ICs, DCs, LDCs7 or the non-WTO member countries (ROW) are able to take advantage of the enlarged EU market access. Due to limited space we further restrict the discussion of the results to the main products of the EU-27. Results are presented in millions of US$ for the year 2001 of the GTAP database. The calculations are based on the software
PACK (Version 9.0), RunGTAP and AnalyseGE (Harrison and Pearson, 1996). A fixed trade balance is adopted as macroeconomic closure in all experiments.
In Table 3 we display the change in the regional trade balance8 by commodity for the Experi-ments 1 to 6. An examination of Table 3 shows high negative changes of the EU-27 trade bal-ance for beef, while all other groups of countries are gaining. In Experiment 3, with lower tariff cuts the EU trade balance loss (-6173 million US$) mostly stems from the elimination of export subsidies to ICs, DCs and ROW. The resulting gain for third countries is more or less evenly distributed between ICs, DCs, and ROW. However, DCs' exports increase disproportionately if tariff cuts are high (all other experiments). In contrast, the trade gain of the LDCs is low and remains relatively unchanged between the experiments. A comparison of Experiments 1 and 5 and Experiments 1 and 6 for the beef sector reveals that neither the capping nor the number of bands has a significant impact on the beef sector in all countries. Clearly, the highly protected EU beef sector is most sensitive to tariff cuts. Accordingly, this loss of Experiment 1 (-19807 million US$) increases and decreases respectively, when equal tariff cuts are enforced on shrunken tariff bands (compare Experiment 1 and 4) or implemented with a different kind of tiered formula (compare Experiment 1 and 2). These changes are mirrored by third countries. The sugar sector's reaction to the implementation of the Doha round is somewhat different. Here, the relative increase of EU sugar imports is accompanied by a loss in the LDCs' and mostly also the ICs' sugar trade balance coming from the preference erosion and the high tariff cuts respec-tively. A comparison of Experiment 1 with Experiments 4, 5 and 6 shows the highly protected sugar sector is invariant to the width of the tariff bands, the capping and the number of tariff bands. The size of changes is only reduced in Experiments 2 and 3 where the progressive for-mula leads to lower tariff cuts or lower tariff cuts are implemented.
Table 3 also shows negative changes for the EU trade balance of milk products in all ments (-10126 to -10980 million US$) which are, however, almost unchanged between experi-ments and are therefore indifferent to variations in tariff cuts and bands, the implemented for-mula and the capping. Consequently, the relative increase of EU milk imports to exports can
8 The change in the trade balance represents the change in the value of fob exports minus the value of cif im-ports.
mainly be attributed to the elimination of EU export subsidies. Again, all third countries show positive changes of their trade balances for milk which remain more or less unchanged in the DCs and the LDCs (compare Experiment 1 to 6). Nevertheless, the DCs can obviously be identi-fied as the main milk surplus producer, gaining as much as 7403 million US$ in Experiment 4. The remaining relative increase in exports is distributed to ICs and the ROW. In contrast to the EU, the ICs are responsive to lower tariff cuts, the more moderate progressive formula and shrunken tariff bands, so that their milk surplus increases from Experiment 1 to Experiments 2, 3 and 4, respectively. In contrast, the reduced number of bands in Experiment 6 apparently leads to higher tariff cuts in ICs which in turn reduces the gain of 1527 million US$ from Experiment 1 to 1380 million US$. The remaining trade gain is always absorbed by the non-participating ROW.
Table 3: Change in Trade Balance (Million US$)
EU-27 IC DC LDC ROW EU-27 IC DC LDC ROW
Difference to
Experiment 1 progressive tiered formula
Cereals -1029 -1488 2320 -7 86 -1172 -1346 2502 -12 -56 Sugar -2814 -764 5163 -1843 93 -1881 -590 3717 -1390 68 Beef -19807 851 16171 133 2020 -14174 1122 10582 127 2026 Other meat 2715 -3386 -317 283 224 837 -1921 293 271 216 Milk -10582 1527 7344 582 1560 -10736 2338 7082 568 1296 Difference to
Experiment 1 lower tariff cuts shrunken tariff bands
Cereals -1160 242 962 2 13 -1125 -2016 3016 -25 -32 Sugar -589 92 810 -252 20 -2824 -831 5221 -1837 97 Beef -6173 1922 2263 117 2023 -20002 666 16508 133 2022 Other meat -2061 839 845 216 205 2445 -3367 -87 292 222 Milk -10126 2985 6425 530 867 -10980 1858 7403 590 1552 Difference to
Experiment 1 tariff capping lower number of tariff bands
Cereals -1038 -1562 2403 -2 81 -1025 -1501 2340 -9 74 Sugar -2819 -776 5181 -1845 93 -2810 -772 5166 -1844 93 Beef -19845 816 16255 132 2018 -19707 944 16007 133 2017 Other meat 2550 -3605 81 287 221 2700 -3403 -278 283 221 Milk -10619 1517 7396 585 1554 -10433 1380 7331 581 1572 Experiment 1 Experiment 2 Experiment 4 Experiment 6 Experiment 5 Experiment 3
1) IC = industrialized countries, DC = developing countries, LDC = least developed countries, ROW = non- WTO member countries
Source: Own calculations.
and regions. The EU loss varies between -1025 and -1172 million US$ and is accompanied by an even higher loss in ICs which amounts to -2016 million US$ (Experiment 04). Most of the addi-tional cereal imports into the EU and ICs come from the DCs whose trade balance rises between 2320 and 3016 million US$. The situation is only changed when tariff cuts are significant lower (compare Experiment 1 and 3). Here, the EU surprisingly suffers one of its highest relative in-creases of imports while ICs are much better off. Table 3 shows a similar situation for other meat. Compared to Experiment 1 (2715 million US$) the EU trade balance for other meat de-crease to 837 million US$ in Experiment 2, and dramatically deteriorates to -2061 million US$ in Experiment 3. Apart from Experiment 2 and 3 the EU, however, experiences a relative in-crease of other meat that is completely absorbed by ICs while the DCs, LDCs and the ROW only play a minor role.
Where does the negative development of the EU trade balance for cereal and other meat in Ex-periment 3 come from? A more detailed analysis can be conducted based on the decomposition which splits the total change of the trade balance in its single components (compare Harrison et al., 1999). These represent the so-called subtotals that are attributable to changes in individual exogenous variables, e.g., the tariff cuts. Table 4 shows this decomposition for the changes in the EU trade balance of cereals and other meat in Experiments 1 to 6. At first glance it can be seen that the driving force behind the change in EU trade balance for cereals is the elimination of EU export subsidies. This effect is very similar in size throughout all Experiments (-1063 to -1080 million US$). A further negative effect for the EU trade balance of cereals results from the cut of import tariff between third countries which clearly displaces EU cereal exports. Here, a compari-son shows that this effect for the EU cereal trade balance is highest in Experiment 4 (-481 mil-lion US$) where tariff cuts are reinforced through an implementation in shrunken tariff bands and the DCs trade balance for cereals increases considerably (3016 million US$, compare Table 3). Table 4 also reveals the opposite effect in Experiment 3, where lower tariff cuts only result in small displacements of EU cereal exports (-88 million US$).
Finally, Table 4 presents the effects of EU tariff cuts for third countries agricultural products as well as the third countries’ tariff cuts for EU agricultural products. While the latter is only of
smaller size, the former compensates the negative effect of tariff cuts between third countries most of the time.
Table 4: Decomposition of the Change in EU Trade Balance (Million US$)
Tax cuts Total
Experi- from TC from EU from TC of non-ag. from EU from TC
ment to EU to TC to TC products to TC to all regions
01 343 85 -373 5 -1070 -20 -1029 02 232 42 -352 5 -1080 -19 -1172 03 40 11 -88 3 -1109 -17 -1160 04 318 116 -481 6 -1063 -21 -1125 05 342 51 -346 5 -1071 -20 -1038 06 341 106 -387 5 -1070 -20 -1025 01 71 10021 -4141 -23 -3225 12 2715 02 -139 7014 -2864 -19 -3168 12 837 03 -17 1244 -351 -7 -2945 15 -2061 04 93 10787 -5180 -26 -3242 12 2445 05 63 9945 -4235 -23 -3212 12 2550 06 4 9849 -3923 -23 -3218 12 2700 Other meat Cereals
Tax cuts of ag. products Elimination of export subsidies
Source: Own calculations.
However, at first sight it is difficult to understand why the cut of EU import tariffs has a positive effect on the EU trade balance for cereals, e.g., 343 million US$ in Experiment 1. For this rea-son, Figure 3 presents a further decomposition of this effect for Experiment 1. Figure 3 discloses that the cut of EU import tariffs for cereals undoubtedly has a negative effect on the EU trade balance for cereals (-100 million US$). However, the tariff cuts for all the other EU agricultural products, particularly for beef (291 million US$), has a positive effect on the EU trade balance for cereals. In sum, these positive effects outweigh the negative effect of the cut of the relatively low EU tariff for cereals.
Table 4 also presents a decomposition of the results for the EU trade balance for other meat. Here, the effect of the elimination of EU export subsidies plays a major role and goes along with a negative effect of tariff cuts between third countries. The latter is particularly high in those experiments which implement high tariff cuts. It amounts to -5180 million US$ in Experiment 4 where high cuts are implemented using shrunken bands.
Figure 3: Effects of the EU Import Tariff Cuts for Agricultural Product on the Trade Balance of
Selected Products (Million US$)
70 28 30 76 24 123 42 -940 291 751 19 -100 71 343 -1200 -1000 -800 -600 -400 -200 0 200 400 600 800 1000 M illionen US$ Milk Sugar Cereals Total effect Beef Other meet
Other agricultural products Other meat Cereals Milk Sugar Cereals Total effect Beef Other meet
Other agricultural products
70 28 30 76 24 123 42 -940 291 751 19 -100 71 343 -1200 -1000 -800 -600 -400 -200 0 200 400 600 800 1000 M illionen US$ Milk Sugar Cereals Total effect Beef Other meet
Other agricultural products Milk Sugar Cereals Total effect Beef Other meet
Other agricultural products Sugar
Cereals Total effect
Beef Other meet
Other agricultural products Cereals
Total effect
Beef Other meet
Other agricultural products Other meat Cereals Milk Sugar Cereals Total effect Beef Other meet
Other agricultural products Milk Sugar Cereals Total effect Beef Other meet
Other agricultural products Sugar
Cereals Total effect
Beef Other meet
Other agricultural products Cereals
Total effect
Beef Other meet
Other agricultural products
Source: Own calculations.
However, it is interesting to note, that high tariff cuts also considerably increase the possibility for the EU to export other meat to third countries, mainly to ICs (compare also Table 3). In Ex-periment 4 this results in a positive effect of the EU trade balance for other meat of 10787 mil-lion US$. However, comparing Experiment 1 with Experiments 4, 5 and 6, it can be stated that the width and the number of the tariff bands, as well as the capping, is not of significant impor-tance for the EU trade balance of other meat and for the one of third countries.
5 Conclusion
The WTO negotiations on market access are a central issue in the public debate. This paper ana-lyses the economic effects of different magnitudes of tariff cuts, different tariff cutting formulas, the implications of tariff capping as well as different numbers and width of tariff bands. The simulations are conducted with an extended version of the GTAP model. Furthermore, an ex-tended version of the GTAP data base (6.0) including bound and applied rates is used.
The results reveal that the EU-27 experiences a negative change of its trade balance in the highly protected beef and sugar sectors. The relative increase of EU beef and sugar imports is mainly
evoked by the magnitude of tariff cuts and, to a lesser extend, by the kind of formula used to implement the tariff cuts. In contrast, the EU trade balance for milk and cereals is hardly influ-enced by different options to cut tariffs. Here, the negative change of the trade balance is mainly driven by the elimination of export subsidies. The results also indicate a relative increase of EU exports for other meat, if tariff cuts are high enough to open third countries' markets to the EU. Who will take advantage of an improved EU market access induced by the WTO negotiations? From the non-participating LDCs and ROW points of view it does not make much of a differ-ence whether tariff cuts are high or implemented with different formulas, numbers and width of tariff bands. They only realize a minor trade gain. Additionally, the LDCs also suffer from pref-erence erosion in the sugar sector which increases with higher tariff cuts. In contrast, DCs are able to disproportionately increase their beef, sugar and cereal exports to the EU, if higher tariff cuts are implemented. A different tariff cutting formula, varying numbers and width of tariff bands and capping, however, does not lead to a significant higher access of DCs to the EU mar-ket.
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